Question

QUESTION 14 A rational, optimizing, self-interested consumer would consume a good up to the point where a the consumer surplus from the last unit is positive b. the consumer surplus from the last unit is negative c. the consumer surplus from the last unit is zero od none of the above QUESTION 15 A price elasticity of demand of -0.67 implies a Demand is perfectly elastic b. Demand is unitary elastic c. Demand is inelastic Od. Demand is elastic QUESTION 16 All the factors below are causes of diminishing marginal returns, except Da Difficulty of monitoring and motivating larger workforces ob Specialization and division of Labor c Increasing complexity of larger systems d. The "fixity' of some factor Click Save and Submit to save and submit. Click Save Answers to save all ar stoers.

Answer 1

14. Consumer Surplus means the surplus that the consumer derives from paying a price less than the maximum price he is willing to pay.

So, Consumer Surplus = P_{​​​​​​max} - P

So, Any Rational, Optimizing Consumer will only consume till a point where his maximum price willing to pay(P_{​​​​​​max} ) is equal to the market price (P). So, P_{​​​​​max} = P.

Hence, P_{​​​​​​max} - P = 0

So, He will consume until consumer Surplus is 0 from the last unit

Hence, Option c. is correct

15. Price Elasticity of demand(PED) ranges from - infinity to + infinity.

If,

|PED| = 0 then Perfectly inelastic

|PED| < 1 then Inelastic

|PED| = 1 then unitary elastic

|PED| > 1 then Elastic

|PED| = Infinity then Perfectly Elastic

As here PED = -0.67

So, |PED| = |-0.67| = 0.67 < 1 so it's Inelastic

Hence, Option c. Demand is inelastic is correct

16. Law of Diminishing Marginal Returns states that as the use of one of the factors is increased with other factors remaining constant then there is a fall in marginal output from the employment of the additional unit of factor.

So, In simple terms as the additional unit of a factor is employed there is fall in marginal output from that factor.

Let's check each option for causes :

Option a : Difficulty of monitoring and motivating larger workforces could be a cause as it may lead to lower returns because larger groups are difficult to monitor than smaller ones. So it's a cause.

Option b : Specialization and division of labour can contribute to an increase in returns as specialization of different factors will lead to better results as the number of factors are increased. So it's not a cause.

Option c : Increasing complexity of larger systems. Larger system will lead to mismanagement and improper returns from increase of factors. So, it's cause

Option d : The 'fixity' of some factor. We know the ratio between different types of factors should be maintained in order for the process to give Increasing returns. When one of the factor is fixed it definitely leads to fall in output as the other factor is increased. So its a cause.

Hence, Only Option b is not a cause of Diminishing Marginal Returns

So, Option b. is correct